Digital Era and Taxation Research Paper

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To Choose an Accounting Topic That Would Be Excellent for A Dissertation.

Research Topic

Taxation in the digital era is an excellent topic for a dissertation because there is an ongoing debate on whether digital companies are paying their fair share of taxes. Some tax experts believe that digital companies enjoy tax levels close to zero compared to traditional companies, yet they earn huge profits. The underlying principle of corporate taxation is that "profit should be taxed where value is created" (Sestakova, 2018). However, digitalization challenges this principle because of it difficult to pin down how and where digital companies create value. Also, digital companies rely heavily on intangible assets, big data, and which is hard to value (Sand- Zantman, 2018). Given this fact, there is a need to research problems that tax accountants face when taxing digital profits.

The above topic is relevant when examined from the technological perspective because of two main reasons. First, taxation policy should promote fairness. Both traditional and digital businesses should bear the same tax burden. It will be unfair for citizens and traditional businesses to bear a heavier tax burden simply because large volumes of digital profits are not taxed. Second, there is a need for sustainable revenues in this digital era. The digital economy is overtaking the traditional economy in terms of market presence. So, if digital taxes are not taxed effectively, revenue gaps will start to emerge, and revenue bases will shrink.

Research Problem

Taxation Issues in the Digital Era

Sand- Zantman (2018) highlighted four features of digital businesses that makes taxation of digital profits difficult. First, it is not easy to track digital activities that generate profits. Digital companies sell their products to customers worldwide from a limited number of sources. Furthermore, a higher percentage of digital goods are intangible. Taxation rules are based on physical location and tangible assets.

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Also, the concepts of intangible property are not well defined in accounting and cannot be considered in taxation.

Secondly, digital companies facilitate transactions between sellers and buyers of traditional goods and services. That is, they act as intermediaries. Given their unique position, they can collect information on consumer behavior and sell it to advertisers. Taxation issues arise because it not clear what can be counted as a new value. Is it…

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…levy is to be paid from gross income. So, it is exempted from income tax. It has been successful because Japan and Argentina introduced a similar tax. In Japan, the levy is 8 percent on cross-border digital services to customers, whereas, in Argentina, it is 3 percent.

Tax experts have criticized this tax measure because of its limitations. First, there is no consensus among tax experts if equalization levy is a direct or indirect tax. Indian government argues that it is an indirect tax because it is not covered by tax treaties. Second, the levy results in equity versus efficiency dilemma. This tax was meant to solve the unequal treatment of domestic and foreign companies. However, domestic recipients are negatively affected by the levy if analyzed from the efficiency point of view. Third, it is not clear who bears the actual burden of the tax. Initially, it was expected that sellers would bear all the burden, but part of the levy may be paid by domestic customers.

Overall, the research literature on taxation in the digital era describes features of digital business that makes taxing of digital profits difficult as well as possible….....

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